FINAL OPINION AUTHORIZING PACIFIC GAS AND ELECTRIC COMPANY
TO DEPLOY ADVANCED METERING INFRASTRUCTURE

This opinion authorizes Pacific Gas and Electric Company (PG&E) to deploy a new Advanced Metering Infrastructure (AMI). We adopt a modified revenue requirement and guaranteed ratepayer benefits. The ratemaking mechanisms will be in place at least until PG&E's next general rate case which we expect to occur for test-year 2010 or later. We also adopt PG&E's rate proposal for critical peak pricing tariffs. This proceeding is closed.

1. Background

The Commission opened Rulemaking (R.) 02-06-001 as a policymaking forum to develop demand response as a resource to enhance electric system reliability, reduce power purchase and individual consumer costs, and protect the environment.1 This application emerged from the Rulemaking and is PG&E's proposal for full deployment of an advanced metering infrastructure. PG&E's application seeks authorization of its AMI deployment proposal and associated cost recovery mechanisms.

AMI consists of metering and communications infrastructure as well as the related computerized systems and software.2 It is often overly-simplified to imply that only meters are involved. In fact, in most instances, PG&E will not replace residential meters with new meters - most of the existing inventory will be retrofitted with communications modules and redeployed.3

PG&E revised its application on October 13, 2005. As amended, the application requests that the Commission approve PG&E's recovery of the actual AMI deployment cost without further reasonableness review if the actual cost is less than or equal to $1.61 billion,4 and to recover additional reasonable amounts, if any, upon appropriate reasonableness review. PG&E also proposes new balancing accounts to track actual costs and pre-approved benefits of the AMI deployment. Because deployment will reduce certain current operating costs, PG&E proposes refunding a forecast per-meter benefit, tied to the actual AMI deployment.

PG&E proposes to change rates on July 1, 2006, and again on January 1 of 2007, 2008, and 2009 to recover the approved forecast revenue requirements for the AMI project. PG&E's rate changes are based on the balancing account balances that record for actual costs for AMI and credits benefits in the form of operating savings, as estimated for each rate change date. The AMI costs include the rate effect for estimated plant additions, and annual depreciation. PG&E also seeks limited authority to temporarily estimate bills while PG&E tries to obtain physical access to the meter to install the AMI modules.

1.1. Prior Approval of Pre-Deployment Funding

In D.05-09-044,5 the Commission authorized PG&E to spend and recover in rates up to $49 million in advance of any possible approval in this proceeding for a full-scale deployment. The Commission stated:

...it is worth noting that although PG&E's policy arguments for approval of its AMI predeployment expenses largely rest on the demand response benefits of AMI, PG&E's case, as presented in A.05-06-028, asserts that the majority of the benefits of the deployment would be operational. That is, deployment of AMI would actually be nearly cost-effective from a utility operations point of view with the potential to save the utility costs over time. The various versions of PG&E's AMI business case that have been submitted in R.02-06-001 over time have shown steady progress in improving the cost-effectiveness of AMI such that less of the benefit would need to be covered by demand response peak demand cost savings. With this in mind, and although we have not yet thoroughly evaluated PG&E's cost-effectiveness claims in A.05-06-028, our sense is that PG&E's AMI deployment, if approved, will have at least some significant benefits to the utility beyond demand response. Therefore, and for all the reasons stated above, we will approve PG&E's request for $49 million in pre-deployment expenses for AMI, as reflected in more detail in Section 8 below.

We remind PG&E that this authorization, while separate from the issues to be decided in A.05-06-028, nonetheless sets the Company on the path of designing and building systems that will one day become new infrastructure. Therefore, we advise once again that we wish to promote open architecture standards, uniform business practices, and data exchange standards. ... (mimeo., pp. 13-14, emphasis added.)

The Commission also made three significant findings and conclusions about PG&E's proposed AMI project:

· The AMI system selected is sufficiently flexible to accommodate different approaches to rate design and informational tools.

· The finding that PG&E's proposed AMI Project meets the minimum functionality criteria does not establish that the system selected by PG&E is the correct or best system, or provides the best value for ratepayers. These are issues to be decided in A.05-06-028. (Conclusion of Law 2, mimeo., p. 21.)

The above findings of fact and conclusion of law allowed PG&E to continue with the development of the AMI project included in this application.

1Order Instituting Rulemaking on policies and practices for advanced metering, demand response, and dynamic pricing, filed June 6, 2002. The Commission's rulemaking named as respondents the following investor owned utilities: PG&E, San Diego Gas & Electric, and Southern California Edison Company. The Rulemaking was closed by Decision (D.) 05-11-009, dated November 18, 2005.

2 PG&E's AMI project includes automation of its gas and electric metering and communications network (5.1 million electric meters and 4.2 million gas meters).

3 PG&E's plan is to retrofit 54% of the existing electric meters and 96.1% of its existing gas meters.

4 Revised from an original estimated cost of $1.46 billion, consisting of an estimated capital cost of $1.25 billion, estimated expense of $213 million.